Calling a spade
Business World, 22 May 2013


I read with great pleasure the May 22 newspaper accounts of PNoy’s reactions to a) yet another move to change the Constitution (Cha-cha) and b) China’s (Taiwan not far behind) bully tactics. I agree with him completely on these two issues.

With respect to Charter change, the most-used grounds for seeking it have been economic. The claim is that the economic provisions of the present constitution — mostly the restrictions on foreign ownership — have closed the door to foreign direct investment (FDI), thus resulting in lost employment and growth opportunities and therefore increasing poverty. This claim has been dusted off and presented every four or six years. And the biggest advocates have been, not surprisingly, the foreign chambers of commerce in the Philippines as well as those who are legal and/or business advisers/consultants of foreign firms. Their stance is not surprising because obviously they are profit-seeking.

What may be surprising, at least at first glance, is that a number of legislators also use the need to change the economic provisions of the Constitution as the reason for Cha-cha. But a very quick second glance, pardon the cynicism, will show that a lot of these so-called advocates actually have another change in mind: the change from a presidential system of government to a parliamentary system. This change will not only allow the political dynasties to be more firmly entrenched (a parliamentary system will do away with term limits), but will afford them more power — they don’t need to have the backing of the majority of the Filipino people to become head of government, all they need is control of the parliament which means an agreement with other political dynasties.

How will the parliamentary-presidential issue come in? Simple. Once the door is open for Cha-cha, it will be well-nigh impossible to limit the change to economic provisions only.

What must be emphasized, again and again, is that neither the need to lift the economic restrictions on foreign ownership, nor the advantages of a parliamentary over a presidential system, have any basis in fact. And as often as these claims have been dusted off and presented, I have dusted off and presented the empirical findings which belie them.

Just for the record, let me summarize them once again.

With respect to FDI: (1) macro-level data may show an association between FDI and higher levels of income, but do not establish causality; (2) micro-level (project) data show positive effects on national income in a majority of projects, but a sizeable minority — 1/3 in two studies, anywhere from 25% to 45% in a third — had deleterious effects; (3) historically, FDI played only a minor role in the growth of most high-performing Asian economies; (4) the factors affecting FDI have been found to be adequate infrastructure, skill levels (human capital), quality of the general regulatory framework, clear rules of the game, and fiscal determination — note that restrictions on foreign ownership is not one of them.

Focusing on the Philippines, (5) the restriction on ownership of land is neutralized by leases up to 75 years on land, and condominium laws on housing; (6) it is not unusual that companies are controlled with less than 40% or 20% of the common stock, while “supermajority” requirements on key decisions protect foreign shareholders.

In brief, therefore, foreign investors may be in happy control or in beneficial ownership, either by liberal interpretation, or by redefinition through legislation, or by use of creative financial and other instruments. Cha-cha is not likely to open any new doors to FDI, because for all intents and purposes, they are already open. Nor will Cha-cha be sufficient to bring in FDI, because FDI will not come in unless the factors affecting FDI enumerated above are addressed.

On the parliamentary-presidential issue, here’s: (1) There is conflicting empirical evidence as to which form of government will lead to lower corruption; (2) the evidence is pretty strong that presidential regimes have smaller government spending as a percentage of GDP than parliamentary regimes (a parliamentary system is one huge pork barrel system, after all); 3) a parliamentary system, while systematically correlated with structural policies, has no significant effect on economic performance.

What is so galling is that the advocates of Cha-cha pretend to be doing it for the good of the Filipino people, particularly the poor. But they actually are doing it for their own private benefit. No altruism involved here. PNoy should unmask them once and for all.

What about China’s bully tactics? The Reader should be reminded that since last year, Bajo de Masinloc/Panatag Shoal/ Scarborough Shoal, which, as we all know is well within our territorial waters, has been placed off-limits to Filipino fishermen over a 15-(nautical) mile radius. By the Chinese government, with Chinese surveillance ships enforcing the rule. And recently, in the Kalayaan Island (Spratly to the rest of the world), a Chinese warship chased and otherwise harassed the 40-meter supply and utility boat of Kalayaan town, trying to get it to sail toward shallow waters and be grounded. How’s that for bully tactics?

We obviously can’t face them on military grounds (whatever happened to our mutual defense treaty with the United States?), where they have the obvious advantage. But we are using to the utmost our diplomatic weapons in the United Nations, where we have the distinct advantage. And the louder the Philippines protests against the bully tactics of China, the more difficult it will be for the international community to pretend that there is nothing amiss.

Taiwan, which is smarting from the one-China policy adopted by most of the international community, is at the same time trying to apply the same kind of bully tactics on us — is that a cultural thing, one wonders? And worse, has allowed our citizens in Taiwan to be harassed. The Philippines seems to be retaliating in kind with Taiwanese citizens in the country, which may be deplorable in principle — but if that is the only kind of tactic that will be effective (to give as good as we get), so be it. In any case, Taiwan will soon be reminded that its attempt to blackmail us economically by refusing to grant visas to OFWs is going to boomerang. Why? Because, those OFWs most probably are more productive than the other foreign OFWs, given their greater educational attainment; moreover, Taiwan sells more to us than we sell to them (it has an export surplus with us). So that if push comes to shove, they will suffer more than we will. And the Taiwanese businessmen are going to have something to say about that, to their government.

Don’t blink, PNoy.